Patents
The Final Curtain Call? Not Quite Yet New Standard of Review for Willfulness
Twombly and Iqbal Redux; Form 18 Is the Pleading Standard for Direct Infringement
Secondary Considerations Evidence Must Be Considered Before a Court Reaches a Decision on Obviousness
Ambiguous Incorporation-by-Reference Language Breaks Continuity Link
Party Seeking Preliminary Injunction Must Demonstrate a Nexus Between the Patented Feature and the Consumers’ Decision to Purchase Its Product
Foreign Defendants Cannot Avoid Personal Jurisdiction in One District by Consenting to Personal Jurisdiction in Another
Federal Circuit Affirms Jury Verdict of Invalidity Based on On-Sale Bar and Public Use
Board’s Invalidity Finding Is Affirmed, Notwithstanding District Court’s Prior Validity Ranking
Federal Circuit Considers Plain Meaning, Specification and Prosecution History to Construe Claims
Federal Circuit Affirms Finding of Motivation to Combine References
Minor Distinctions Over Prior Art May Not Be Enough to Overcome Obviousness
USPTO Releases Proposed Rules for Micro Entity Status
Lanham Act
Lanham Act Challenges May Not Undermine FDA Regulations
Trade Dress
Trade Dress Damages Award Upheld After Failure to File Post-Verdict Motions
Trademarks
Exit the Dragon: Tenth Circuit Affirms Dismissal of Cybersquatting Claim on Bruce Lee’s “Jeet Kune Do” Mark Brought by Non-Owner Martial Arts Instructor
Parody Not a Defense When Trademarks Are Confusingly Similar
Copyrights
South Park a Parody? No, Really?
Postal Service Must Pay Reasonable Royalty for Copyright Infringement
Patents / Willfulness
The Final Curtain Call? Not Quite Yet New Standard of Review for Willfulness
by Paul Devinsky
In the panel decision of the U.S. Court of Appeals for the Federal Circuit in February 2012, in the case of Bard Peripheral Vascular v. W. L. Gore & Assoc. (IP Update, Vol. 2, No. 15), the panel majority heralded the decision as marking the “final curtain of the saga.” It has now proven to be merely an intermission. As a result of a panel rehearing, the curtain has now risen on a new chapter of the saga dealing with the issue of the standard of review that applies to the issue of willfulness under In re Seagate (IP Update, Vol. 10, No. 8). Bard Peripheral Vascular v. W. L. Gore & Assoc., Case No. 10-1510 (Fed. Cir., June 14, 2012) (Gajarsa, J.) (Newman, J., concurring in the vacatur; dissenting from the remand). In voicing her dissent from the majority remand, Judge Newman insists that given the new standard of review announced in the opinion, no remand is needed to resolve the willfulness issue.
In the initial panel decision, the willfulness issue centered on whether Bard established “by clear and convincing evidence that [Gore] acted despite an objectively high likelihood that its actions constituted infringement of a valid patent” and that this objectively defined risk … was either known or so obvious that it should have been known to [Bard]” under Seagate.
The majority (in the initial panel decision) pointed to the 18-year-long interference between Cooper (Bard’s inventor) and Goldfarb (Gore’s punitive inventor) and the result of that interference as an indication that Gore’s actions were culpable under the above objectively defined risk portion of the Seagate standard. The majority further concluded that the opinion of Gore’s counsel, introduced on the issue of willfulness and authored by Gore’s interference counsel’s law firm, “was not based on an objective perspective” and that the district court correctly “viewed the objectivity of the opinion as questionable.” Thus, the applying the “substantial evidence” test, the majority concluded that substantial evidence had been presented to the jury to support “the finding that Gore knew or should have known of the objectivity high likelihood that its grafts infringed the … patent.” On that basis, the district court’s willfulness finding was affirmed.
In its new decision, the panel (unanimously) noted that even though many post-Seagate Court decisions generally characterize willfulness as a fact question (and therefore subject to the substantial evidence test in appeals from jury verdicts), “our opinions have begun to recognize that the issues are more complex” and that the characterization of willfulness as a fact issue “oversimplifies” it. Now, in its decision on reconsideration, the panel explained that “[w]hile the ultimate question of willfulness based on an assessment of the second prong [i.e., that the risk was known or obvious] of Seagate may be a question of fact, Seagate also requires a threshold determination of objective recklessness. That determination entails an objective assessment of potential defenses based on the risk presented by the patent. Those defenses may include questions of infringement but also can be expected in almost every case to entail questions of validity that are not necessarily dependent of the factual circumstances of the particular party accused of infringement.”
Thus, on panel rehearing, the unanimous panel holding is “that the objective determination of recklessness, even though predicated on underlying mixed questions of law and fact, is best decided by the judge as a question of law subject to de novo review.” Consistent with its holding, the Court explains that trial courts, “[i]n considering the objective prong of Seagate, … may, when the defense is a question of fact or a mixed question of law and fact, allow the jury to determine the underlying facts relevant to the defense in the first instance, for example, the questions of anticipation or obviousness. But, consistent with this court’s holding today, the ultimate legal question of whether a reasonable person would have considered there to be a high likelihood of infringement of a valid patent should always be decided as a matter of law by the judge.” Finally, the panel remanded the case to the trial court to “apply the correct standard to the question of willfulness in the first instance.”
Although Judge Newman joined in the vacatur of portions the panel decision “to correct its ruling on the subject of willful infringement,” she dissented from the remand. Judge Newman noted that applying the correct standard “it seems clear that remand is unnecessary” and that, based on the record, “it is apparent that willful infringement is not supportable.”
Practice Note: In terms of appellate review, the issue of objective willfulness will now take its place in a similar posture as other mixed questions of law and fact such as obviousness. Observers will closely watch the de novo review standard as it is applied to the ultimate legal question of willfulness in future Federal Circuit for trends as to whether this new standard of review favors patentee or accused infringers.
Patents / Litigation
Twombly and Iqbal Redux; Form 18 Is the Pleading Standard for Direct Infringement
by Paul Devinsky
Overturning the district court’s dismissal of an amended complaint for induced infringement with prejudice, the U.S. Court of Appeals for the Federal Circuit explained that compliance with the form pleading associated with F.R. Civ. Pro. 8(a) (2) is sufficient to sustain a pleading of direct infringement, Twombly notwithstanding. In Re Bill of Lading Transmission & Processing System Patent Litigation, Case Nos. 10-1493; -1494; -1495; 11-1101; -1102 (Fed. Cir., June 7, 2012) (O’Malley, J.) (Newman, J., dissenting in part).
The patent in suit owned by R+L covers a freight shipping and management system for automating process of using received transportation documentation to produce loading manifests. In a series of complaints and counterclaims, R+L alleged Qualcomm, DriverTech, Affiliated Computer Services, PeopleNet Communications and Intermec Technologies operate by use of its patented method in connection with their customers (the alleged direct infringers). In each complaint R+L plead contributory infringement and active inducement to infringe against the named defendants. In each case the defendant moved to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim, arguing that the complaint failed to plausibly allege either the predicate direct infringement or indirect infringement.
After the district court dismissed R+L’s first filed set of complaints (without prejudice), R+L filed amended complaints against Qualcomm, DriverTech, ACS, PeopleNet and Intermec Technologies, again asserting both contributory infringement and active inducement. The district court again dismissed the amended complaint, concluding that R+L had not adequately pled direct infringement (by naming specific customers of the respective defendants), which the district court concluded was a necessary predicate before it could to establish indirect infringement. R+L appealed.
On the issue of whether R+L adequately pled direct infringement, the Federal Circuit reversed, noting that Rule 8(a)(2) only requires a plausible short plain statement of plaintiffs’ claims and that the district court erred in fining R+L’s pleading of direct infringement to be “deficient.”
The Federal Circuit agreed that while the “plausibility argument” has been defined by the Supreme Court in Twombly, it noted for pleading direct infringement “there is a form that governs at least some aspects of R+L’s amended complaints” and that under Fed. R. Civ. P. 84 and the Advisory Committee Notes, compliance with the form (Form 18) is “sufficient to withstand attack under the rules under which they are drawn.” The Court concluded that “to the extent the parties argue that Twombly and its progeny conflict with the Forms and create differing pleading requirements, the Forms control.”
Comparing R+L’s pleading to the Form, the Court concluded that the accused infringers direct infringement pleading argument “is premised on a pleading standard that is too stringent.” In a footnote, the Court noted that while the Form may be open to criticism, “it is not within our power to rewrite it; only an act of Congress can revise the Federal Rules.” Having determined that direct infringement was sufficiently pled, the Court turned to contributory infringement and inducement.
Contributory Infringement
In order to state a claim for contributory infringement, “a plaintiff must, among other things, plead facts that allow an inference that the components sold or offered for sale have no substantial non-infringing uses,” meaning uses that are “not unusual, far-fetched, illusory, impractical, occasional, aberrant or experimental.” R+L argued that because the defendant’s products, as customized for their trucking customers, have no substantial non-infringing uses, it adequately pled contributory infringement. The Court explained that the contributory infringement inquiry focuses elsewhere, “on whether the accused products can be used for purposes other than infringement.” Since the attachment to the pleadings did show non-infringing uses for the accused products, the pleadings supply “the very facts which defeat a claim of contributory infringement.”
Induced Infringement
Per DSU Medical (IP Update, Vol. 9, No. 12), induced infringement requires “that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another's infringement.” On this issue, the Court explained that while R+L must plead sufficient facts to plausibly show intent, it need not “prove its case at the pleading stage.”
Although the district court found R+L’s claims “implausible and unreasonable,” the Federal Circuit disagreed, noting that the flaw in the district court’s assessment was based on a “failure to draw all reasonable inferences in favor of [R+L]” and that the district court erred in dismissing R+L’s complaint as to inducement.
Although Judge Newman concurred in the result as to the specific facts in this case, in her dissent she took the majority to task for a decision that in her opinion “establishes a new pleading standard for patent infringement actions” and discards “the general national standard for civil complaints.” In Judge Newman’s view, Form 18 notwithstanding, Twombly and Iqbal require that the plaintiff must “at the very least, in all cases ‘give the defendant fair notice of what the … claim is and the grounds on which it rests.’”
Patents / Obviousness
Secondary Considerations Evidence Must Be Considered Before a Court Reaches a Decision on Obviousness
by Christina A. Ondrick
Addressing the legal standard for an obviousness determination under 35 U.S.C. § 103, the U.S. Court of Appeals for the Federal Circuit made clear that evidence on secondary considerations must be considered before reaching any decision on obviousness. Mintz v. Dietz & Watson, Inc., Case No. 10-1341 (Fed. Cir., May 30, 2012) (Rader, C. J.).
In Mintz, the Federal Circuit vacated a district court’s summary judgment decision finding a patent invalid as obvious on several grounds, including the district court’s failure to consider evidence of secondary considerations before reaching a summary judgment decision on obviousness. The Federal Circuit observed that the district court in Mintz “seemed to believe that it need not fully weigh objective indicia evidence” of secondary considerations. The Federal Circuit reaffirmed that it has consistently counseled otherwise and that the district court’s obligation to consider secondary considerations is not waived “by some procedural requirement that ducks consideration of the evidence.” Secondary considerations are objective guideposts and “powerful tools for courts faced with the difficult task of avoiding subconscious reliance on hindsight” that must be evaluated before reaching a decision on obviousness. Secondary considerations provide “built-in protection [that] can help to place a scientific advance in the proper temporal and technical perspective when tested years later for obviousness against charges of making only a minor incremental improvement.” As the Federal Circuit aptly noted, “[o]bviousness requires a court to walk a tightrope blindfolded (to avoid hindsight)—an enterprise best pursued with the safety net of objective evidence.” Because the district court committed legal error and obviousness is a factual inquiry, the Federal Circuit did not make the required fact findings on secondary considerations and remanded the case back to the district court.
Practice Note: Because a district court must consider evidence of secondary considerations (when present) before reaching a decision on obviousness, it is possible for a patent owner to postpone early motions for summary judgment pursuant to Fed. R. Civ. P. 56(d) so that sufficient evidence on secondary considerations may be gathered (including, for example, evidence from the accused infringer and third parties concerning copying or praise for the patented invention).
Patents / Incorporation by Reference
Ambiguous Incorporation-by-Reference Language Breaks Continuity Link
by Daniel Bucca, Ph.D.
Reversing the Board of Patent Appeals and Interferences (the Board) of the U.S. Patent and Trademark Office, the U. S. Court of Appeals for the Federal Circuit held that a patent application involved in an interference was not entitled to the filing date of an earlier filed application because of ambiguous incorporation-by-reference language use in intervening applications. Hollmer v Harari, Case No. 11-1276 (Fed. Cir., Jun. 7, 2012) (Prost, J.).
This decision represents the second of two appeals. In the first appeal, Harari v. Hollmer (Harari I) (IP Update, Vol. 13, No. 5), the Federal Circuit ruled on the issue of whether the earliest filed application in a chain of applications (the parent application) properly incorporated subject matter by reference. In Harari I, the Court explained that it was appropriate for the parent application to identify, for the purposes of incorporation by reference, another co-pending, unrelated application by title, inventors and specific filing date if such information was sufficient to identify the unrelated application at the time the information was presented, e.g., at the initial filing stage. In further explaining Harari I, the Court stated that the “proper standard by which to evaluate the sufficiency of incorporation by reference language, at this stage of the proceedings, is whether the identity of the incorporated reference is clear to a reasonable examiner in light of the documents presented.” (Emphasis in the original.)
In this second appeal, however, the Court decided that the Harari I standard of a “reasonable examiner” did not apply because the issue being address in this case was not the propriety of the identification of an incorporated reference at the “initial filing stage.” Rather, the standard applied by the Court in this case was whether the intervening patent applications maintained the continuity of disclosure using a reasonable person of ordinary skill in the art standard. Under this standard, the Court held that the Hollmer’s application was not entitled to the filing date of its parent because the incorporation by reference language used in two intervening continuation applications was ambiguous as to the identification of the incorporated reference.
Practice Note: When incorporating another application by reference, be sure to identify the incorporated application by serial number in the specification of the host application. If the serial number is not available at the time of filing the host application, identify the incorporated application by title, inventor(s) and filing date, and make sure to amend the host application to include the serial number when it becomes available. Be sure to then properly identify the incorporated application in any subsequently filed application to maintain continuity.
Patents / Preliminary Injunctions
Party Seeking Preliminary Injunction Must Demonstrate a Nexus Between the Patented Feature and the Consumers’ Decision to Purchase Its Product
by Michael V. Sardina
In an opinion that provides evidentiary guidance for parties seeking preliminary injunctive relief in patent infringement cases, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s denial of Apple’s request for a preliminary injunction against Samsung smartphones based on a failure to establish a nexus between the claim and feature(s) that drive sales of the accused product. Apple, Inc. v. Samsung Elec. Co., Ltd., Case No. 11-1846 (Fed. Cir., May 14, 2012) (Bryson, J.) (O’Malley, J., dissenting).
Apple sued Samsung for patent infringement, alleging that certain Samsung smartphones and tablets infringed the claims of several Apple design and utility patents. Apple sought a preliminary injunction to prevent the sale of smartphones and tablets manufactured and sold by Samsung, arguably one of Apple’s most significant competitors in the industry. After a preliminary injunction hearing, the district court denied the request for injunctive relief, finding that Apple failed to prove that it would suffer irreparable harm without an injunction. Apple appealed.
The Federal Circuit upheld the district court. Focusing on the “irreparable harm” factor of the traditional, four-factor injunctive relief analysis, the Federal Circuit explained that “[t]o show irreparable harm, it is necessary to show that the infringement caused harm in the first place.” The patentee must therefore demonstrate that the patented feature actually drives consumer demand for the product. That is, there must be a “nexus between the patent and market harm.”
The Federal Circuit noted that Apple failed to submit evidence of lost sales of its products and, further, that Apple failed to make a “clear showing” of a substantial loss in market share. The Court distinguished i4i v. Microsoft, a case in which an injunction was granted even though consumers were not buying Microsoft’s product for the infringing feature. In that case, i4i’s XML editor product was sold as an add-on product to Microsoft Word and therefore the injunction was necessary because Microsoft’s infringement “would have completely eradicated the market for [i4i’s] add-on [product].” In this case, Samsung’s infringing features were not shown to “threaten to have any such dramatic effects on the [smartphone] market generally or on Apple’s share of the market.”
The Federal Circuit agreed with the district court that Apple was likely to succeed on the merits with respect to allegations of infringement for several of its asserted patents. However, the Court also concluded that the district court’s anticipation and obviousness analysis was flawed with respect to several of the other patents-in-suit. In any event, the denial of the requested injunction was premised on Apple’s failure to prove that it would suffer irreparable harm driven by the implementation of the infringing features in the accused products.
Practice Note: Parties seeking preliminary injunctive relief must be prepared to demonstrate evidence of irreparable harm by showing that the allegedly infringing features of the accused product(s) drive the demand for their sale; parties who seek injunctive relief must demonstrate a nexus between the patent claims in issue and market harm.
Patents / Personal Jurisdiction
Foreign Defendants Cannot Avoid Personal Jurisdiction in One District by Consenting to Personal Jurisdiction in Another
by Jeremy T. Elman
Addressing the issue of personal jurisdiction for a company incorporated outside the United States, the U.S. Court of Appeals for the Federal Circuit affirmed the enforceability of a district court’s injunction after the district court issued a default judgment on infringement, notwithstanding the defendant’s consent to the jurisdiction of a different district court. Merial Ltd. et al. v. Cipla Ltd., et al. Case No. 11-1471; -1472 (Fed. Cir., May 31, 2012) (Lourie, J.) (Schall, J., dissenting).
Cipla, a pharmaceutical company incorporated in India, was sued by Merial in the U.S. District Court for the Middle District of Georgia for infringement of two U.S. patents directed to pest control compositions to controls ticks and other pests. Merial alleged that Cipla was subject to personal jurisdiction because of Cipla’s alleged contacts with and conduct within the state of Georgia; it provided service of process to Cipla in India by courier and registered mail. Cipla did not respond to the complaint or enter an appearance, and the district court found Cipla in default and granted an injunction. Cipla’s distributors were informed of the injunction by former Merial executives. Nevertheless, after the injunction issued, the distributors distributed Cipla products that consisted of reformulations of Merial’s veterinary pesticide products which Merial claimed infringed its patents. Thus, Merial claimed that both Cipla and Velcera were in contempt of the injunction. The district court issued a contempt order to both Cipla and the distributor. Cipla appealed.
In challenging the contempt order, Cipla argued that the district court lacked personal jurisdiction when it issued the default judgment. Cipla’s main argument on appeal was that Cipla had consented to personal jurisdiction in the Northern District of Illinois, so the Middle District of Georgia could not have jurisdiction over Cipla. The Federal Circuit, citing Federal Rule of Civil Procedure 4(k)(2), explained that the rule acted as a federal long-arm statute and was applicable to provide a forum for federal claims in situations in which a foreign defendant lacks substantial contacts with any single state but has sufficient contacts with the United States as a whole to satisfy due process standards. The Federal Circuit further explained that Cipla’s belated consent to suit in Illinois was not sufficient to prevent the application of Rule 4(k)(2) by the Georgia court, since a defendant cannot defeat Rule 4(k)(2) by simply naming another state, as it is the defendant’s burden to identify a forum that would have been proper at the time of filing—regardless of consent.
The Court explained the “[o]nce it received notice of suit … the choice was Cipla’s whether the jurisdictional question should be settled then or at some point post-judgment.” The Court further explained that the Georgia court’s “default judgment was premised on a valid exercise of personal jurisdiction under Rule 4(k)(2), and we therefore decline to upset its decision on that basis.”
The Federal Circuit explained that in situations such as this, Rule 4(k)(2) cannot be negated unless one forum is manifestly more appropriate than the other. The Federal Circuit stopped short, however, of providing “general requirements” for a defendant to prevent the application of Rule 4(k)(2) by consenting to suit in another jurisdiction, but stated it “suffices in this case” to hold that a defendant challenging a prior default judgment may not do so by naming another forum that would not have had an independent basis for jurisdiction at the time of the original complaint. If Cipla were allowed to do so, defendants could undo an adverse final judgment in one jurisdiction with a bare assertion of consent to jurisdiction in another location.
The Court also affirmed the district court’s contempt order on other grounds, including that the contempt proceedings should not be stayed in light of defendant’s declaratory judgment action, that the district court properly found direct and inducement of infringement and that the injunction was proper with regard to scope and parties.
Judge Schall in dissent would vacate the contempt and underlying default order and remand the case with instructions to transfer it to the Illinois court. He argued that the Georgia court should have permitted Cipla designation of Illinois as the forum for the suit.
Patents / On-Sale Bar and Public Use
Federal Circuit Affirms Jury Verdict of Invalidity Based on On-Sale Bar and Public Use
by Amol Parikh
Affirming the district court’s judgment, the U.S. Court of Appeals for the Federal Circuit cleared Facebook of allegations of patent infringement, finding that that the patent in suit was invalid under 35 U.S.C. § 102(b) because the patentee’s product which embodied the patented subject matter was on sale and in public use more than one year before the filing of the patent. Leader Tech., Inc. v. Facebook, Inc., Case No. 11-1366 (Fed. Cir., May 8, 2012) (Lourie, J.).
Leader filed the application for the asserted patent in December 2003. However, the relevant history of the development that led to the patent application began in August 1999, when the inventors conceived of the invention claimed in the asserted patent. Immediately after conceiving the idea, the inventors began developing software based on that idea with the goal of building a commercial product. That development led to a product referred to as the Leader2Leader®. Starting in 2002, more than one year before Leader filed its patent application, Leader began offering Leader2Leader® for sale, demonstrating the product to a number of companies. The company also presented a white paper that described the functionality of Leader2Leader® and stated that Leader was commercializing the product.
In 2008, Leader sued Facebook for infringement of its patent. During the discovery phase of the litigation, Facebook asked Leader to identify all product and services that practice the claims of the asserted patent. In response, Leader provided written responses stating that Leader2Leader® is the only product provided by Leader that embodies any claims of the asserted patent. In addition, during the deposition of one of the inventors, the inventor could not identify any iteration of Leader2Leader® that did not fall within the scope of the claims. Based on these admissions, Facebook alleged that the asserted patent was invalid under § 102(b) because a product embodying the claims of the asserted patent (i.e., Leader2Leader®) was on sale and in public use more than a year before the patent application leading to the asserted patent was filed.
Attempting to deflect Facebook’s allegation, Leader changed its story at trial. During the trial, Leader argued that its written responses were directed to whether Leader2Leader® practiced the asserted claims in 2009, and not anytime prior to 2009. The inventor also changed his story, now testifying that Leader2Leader® was covered by the asserted patent in 2007 and 2009, but not prior to December 2002. On cross-examination, Facebook played the inventor’s inconsistent deposition testimony in which he said that he did not remember a time that Leader2Leader® did not practice the claims of the asserted patent. After the parties argued their positions to the jury, the jury returned a verdict in favor of Facebook finding that the patent was subject to an invalidating sale and public use. The district court thereafter denied Leader’s post-trial motions for judgment as a matter of law and a new trial, finding that the inventors discredited testimony coupled with the written discovery responses and Leaders’ offer of the Leader2Leader® in 2001 and 2002 as evidence sufficient to support the jury’s verdict of invalidity. Leader appealed.
On appeal, Leader argued that Facebook failed to offer any evidence, such as expert testimony, source code or schematics, showing that the version of Leader2Leader® offered for sale and in public use prior to December, 2002 fell within the scope of the asserted claims. Facebook responded by pointing to Leader’s internal document and correspondence to potential customers, Leader’s written discovery responses and testimony from the inventors. Facebook also argued that the jury was permitted to weigh the inventor’s lack of credibility against Leader in rendering a verdict.
Agreeing with Facebook, the Federal Circuit held that legally sufficient evidence supported the jury’s verdict that the version of Leader2Leader® demonstrated and offered for sale in 2002 was an embodiment of the asserted claims. First, the Court found that Leader admitted in its written discovery responses and during the inventor’s deposition that Leader2Leader® embodied the asserted patent. The Federal Circuit squarely rejected Leader’s argument that the written discovery responses and deposition testimony were limited to the present time period because neither Leader nor the inventor included any such qualifying language in their answers. Second, the Court found that coupled with Leader’s admissions, the record contained sufficient documents and inventor testimony that Leader offered for sale and publicly demonstrated a product that fell within the scope of the asserted claims. Third, the Court found that the jury was permitted to discredit the inventor’s trial testimony and conclude based on the documentary evidence that Leader2Leader® was on sale and publicly demonstrated in 2002. Finally, the Court noted that Leader failed to provide any documents showing that the Leader2Leader® version existing in 2002 was substantially different from versions after 2002. Taking the evidence in totality of the evidence into account, the Court affirmed the district court and sustained the jury verdict.
Patents / Reexamination
Board’s Invalidity Finding Is Affirmed, Notwithstanding District Court’s Prior Validity Ranking
by Michael A. Messina
In affirming a finding by the U.S. Patent and Trademark Office (PTO) Board of Patent Appeals and Interferences (the Board) of invalidity after previously affirming a district court’s holding of validity of the same claims, the U.S. Court of Appeals for the Federal Circuit explained that while the Board should give serious consideration to a court decision, it is permissible for the Board to reach a different conclusion. In re Baxter Int’l, Inc., Case No. 11-1073 (Fed. Cir., May 17, 2012) (Lourie, J.) (Newman, J., dissenting).
Baxter International owns a patent directed to hemodialysis machines. In 2003, Baxter’s competitor Fresenius filed a declaratory judgment action alleging invalidity of certain claims of the patent. After a jury found Fresenius proved certain claims of the patent were obvious, Baxter moved for judgment as a matter of law. In 2007 the district court granted Baxter’s motion. The district court concluded Fresenius failed as a matter of law to show by clear and convincing evidence that the prior art disclosed the “means for controlling” and “means for delivering” limitations recited in the independent claim. Fresenius appealed, and the Federal Circuit affirmed, albeit on the “somewhat different” grounds, concluding that Fresenius failed to present evidence that a structure corresponding to the means for delivering, or an equivalent thereof, existed in the prior art.
Meanwhile, in 2006, Fresenius initiated a reexamination proceeding in the PTO, in which the examiner found those same claims were rendered obvious by a combination of references, some of which were at issue in the declaratory judgment proceeding and others that were not cited by Fresenius in the court proceeding. After the Board affirmed the examiner’s rejections, Baxter appealed to the Federal Circuit.
The Federal Circuit affirmed, concluding that the Board’s findings were supported by substantial evidence. The Federal Circuit, quoting In re Swanson, explained that “the PTO in reexamination proceedings and the court system in patent infringement actions ‘take different approaches in determining validity and on the same evidence could quite correctly come to different conclusions.’” The difference is that a challenger attacking the validity of patent claims in civil litigation has the burden of proving invalidity by clear and convincing evidence. If this challenge fails to meet that burden, the court will not find the patent claims valid, but instead will hold only that the challenger did not meet its burden. In contrast, the standard of proof in a PTO reexamination is simply a preponderance of the evidence, i.e., a substantially lower evidentiary burden.
The Federal Circuit went on to explain that if “a party who has lost in a court proceeding is challenging a patent, from which no additional appeal is possible, provokes a reexamination in the PTO, using the same presentations and arguments, even with a more lenient standard of proof, the PTO ideally should not arrive at a different conclusion. However, the fact is that the Congress has provided for a reexamination system that permits challenges to patents by third parties, even those who have lost in prior judicial proceedings.” In this case, the PTO found a substantial new question of patentability was raised by Fresenius’ reexamination request, the examiner relied on new prior art not introduced in the district court proceeding and the examiner properly conducted the reexamination. Thus, the Federal Circuit concluded that “this case is not about the relative primacy of the courts and the PTO, about which there can be no dispute.” Further, the Federal Circuit could not bar the PTO from conducting a reexamination proceeding of the patent because of the final judgment in the district court proceeding without overruling its own prior precedent, including Swanson and Ethicon.
The Court thus affirmed the Board’s decision.
Judge Newman dissented, contending the majority’s decision “permits administrative nullification of a final judicial decision.” She stated that the majority was simply deferring to the PTO and opined that “the nature of the burden of proof does not overcome the strictures of judicial finality.” Judge Newman further argued that the principle of preclusion should apply to reexamination of the same issues of fact and law and concluded that the reexamination rejection was based “solely” on the same references Fresenius relied on in the district court proceeding—a factual conclusion that is directly at odds with the majority opinion.
Patents / Claim Construction
Federal Circuit Considers Plain Meaning, Specification and Prosecution History to Construe Claims
by Gregory D. Yoder
The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s claim construction ruling based on the plain meaning of the claim phrase, the specification and the prosecution history. Walker Digital, LLC v. Microsoft Corp., et al., Case No. 11-1419 (Fed. Cir., May 24, 2012 (Moore, J.).
Plaintiff Walker Digital obtained a patent directed to a method and apparatus for performing background searches over a network from within an application program, such as a word processor, without interrupting the use of the application program. Walker Digital sued Microsoft and Hewlett-Packard for infringement.
The district court construed three terms to require initiation of the search on a background thread, as opposed to a foreground thread. The terms were “initiating from said first application program, on a background thread over a network, a search,” “a step to initiate from the first application program, on a background thread over a network, said search” and “initiating from the first application program, on a background thread over a network, said search.”
Based on these constructions, and because the accused Microsoft Word program initiates the search in its foreground thread, the district court granted summary judgment of non-infringement to Microsoft. Walker Digital appealed.
On appeal, Walker Digital argued that the only embodiment in the patent disclosed initiating the search in the foreground, then performing the search in the background. Walker Digital further argued that the clause “on a background thread over a network” in the disputed claims modifies “search” instead of “initiate” or “initiation” because the search is initiated from the application program, not over a network.
The Federal Circuit affirmed, looking first to the plain meaning of the claims. The Court concluded that the claims required that the search be initiated from the application program on a background thread and over a network. The Court distinguished the use of the term “initiate” in the specification from its use in the claims, specifically noting that the specification uses “initiate” from the user’s point of view, whereas the claims use “initiate” from the program’s point of view. Accordingly, the Court found the plain meaning of the claims to be consistent with the specification, requiring the program to initiate the search in the background while returning control of the application to the user.
The Federal Circuit also found the plain meaning of the claims to be consistent with statements made by the applicant during prosecution of the patent. In distinguishing prior art, the applicant stated the prior art “contains no disclosure concerning initiating a search without preempting an application program.” The Federal Circuit concluded that for the search to be “initiated” without preempting the application program running on the foreground thread, the “initiation” must occur on a background thread, not a foreground thread.
Patents / Obviousness
Federal Circuit Affirms Finding of Motivation to Combine References
by Aamer S. Ahmed
In affirming a decision by the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (Board) finding of obviousness, the U.S. Court of Appeals for the Federal Circuit agreed that there was substantial evidence to support a finding of a motivation to combine references. In re Hyon et al., Case No. 11-1239 (Fed. Cir., May 24, 2012) (Bryson, J) (Newman, J., dissenting).
Hyon submitted the reissue application at issue and included a claim for a method for producing an ultra-high molecular weight polyethylene (UHMWPE) block, as well as a claim that was substantially identical, except it also included a preamble that recited an UHMWPE artificial joint component for implantation in a human or other animal. The method claims included the steps of crosslinking an UHMWPE block by irradiating it; heating the crosslinked block; subjecting the heated block to pressure; and then cooling the block.
During prosecution, the examiner found that a prior art patent (Zachariades) met each limitation of the reissue claims except the step of crosslinking the UHMWPE prior to the step of compression deformation of UHMWPE. However, the examiner found that another prior art patent (Kitamaru) disclosed the step of crosslinking the UHMWPE prior to compression. The examiner then found that it would have been obvious to use the crosslinked UHMWPE in the method of Zachariades given Kitamaru’s teaching that crosslinking prior to compression deformation results in improved transparency, increased melting point and excellent dimensional stability.
On appeal to the Board, the applicant did not challenge the examiner’s findings as to what the references disclosed. Instead, the applicant argued only that there would have been no motivation to combine the teaching of the two references. The Board rejected that argument, finding that Kitamaru provided the reason for modifying Zachariades to crosslink before compressing. The applicant appealed to the Federal Circuit.
The issue on appeal was whether the Board’s determination on motivation to combine was in error because the references themselves teach fundamentally different material technologies; Zachariades being directed to artificial joints and Kitamaru being directed to films and sheets.
The Federal Circuit found that the Board’s determination regarding motivation to combine was supported by substantial evidence. The Court also found the Board’s conclusion that the references both teach processes directed to making the same class of products is also supported by substantial evidence, stating that “differences in the UHMWPE products described by the embodiments do not negate the motivation to combine the references.” The Court stated that Zachariades “does not disparage pre-compression crosslinking,” “does not state that UHMWPE product can be made only be crosslinking after compression deformation, nor does it state or suggest that faulty or inferior products will result from crosslinking prior to compression.”
Judge Newman dissented from the Court’s “endorsement of the Board’s flawed analysis.” She explained that the Board’s finding of obviousness was based on impermissible backward reasoning from the Hyon method: “[i]t was only after Hyon demonstrated how to achieve this improved result that the Board was able to plug the prior art steps into the template of the Hyon method.”
Patents / Reexamination—Obviousness
Minor Distinctions Over Prior Art May Not Be Enough to Overcome Obviousness
by Sungyong “David” In
In a non-precedential decision, the U.S. Court of Appeals for the Federal Circuit reversed a decision by the U.S. Patent and Trademark Office’s Board of Patent Appeals and Interferences (Board) in an inter partes reexamination in which the Board had reversed the examiner and concluded that the claims in reexamination were patentable over the cited prior art. PlaSmart v. Kappos and Wang, Case No. 11-1570 (Fed. Cir., May 22, 2012) (Lourie, J.).
Patentee Wang alleged PlaSmart infringed its patent directed to safety equipment for a scooter, including an arm that extends from a twister member and a safety wheel mounted to the arm to prevent the scooter from flipping over. PlaSmart requested an inter partes reexamination of the patent based on two prior art references: a Chinese patent application to Song and Chinese patent publication to Handong.
Song disclosed an exercise tricycle for children, which included two universal stabilizing wheels mounted off the ground on the front of the tricycle. Song taught that such universal wheels provided additional stability in the direction of movement when in contact with the ground. Handong disclosed a scooter with a pair of front and rear driving wheels and included all the limitations of the representative claim except the recited safety driving equipment.
During inter partes reexamination, the examiner rejected the representative claim as being anticipated by Song and as being obvious over Handong in view of Song. PlaSmart appealed to the Board.
The Board reversed the examiner, finding that Song did not anticipate the claim. The Board also reversed the examiner on obviousness, concluding that although Song disclosed a reason for adding universal wheels to the scooter disclosed in Handong, because Song did not position the universal wheels in the same location as that claimed, the combination of Handong and Song did not render the claim obvious. PlaSmart appealed to the Federal Circuit.
In reviewing the Board’s factual findings for substantial evidence and the legal conclusion of obviousness de novo, the Court concluded that the Board’s reversal of the examiner’s rejection was based “only on minor distinctions” (i.e., placement of the safety wheels) between the prior art and the claimed invention. Based on the Board’s factual findings, and applying the law of obviousness under KSR, the Federal Circuit determined it would have been obvious to modify Handong’s scooter to include a safety wheel of Song positioned in the claimed location because such a modification is “nothing more than a predictable use of prior art element (universal wheels in contact with the ground in front of the twister member) to address a known problem (stability).”
Patents / America Invents Act
USPTO Releases Proposed Rules for Micro Entity Status
by Bernard P. Codd
The U.S. Patent and Trademark Office (USPTO) recently released proposed rules for micro entity status, as authorized by the America Invents Act (AIA). The proposed rules set out procedures for claiming micro entity status, paying micro entity fees, notification of loss of micro entity status and correction of payments of erroneously paid micro entity fees. Applicants filing under micro entity status would benefit from a 75 percent reduction of certain USPTO fees. While the micro entity provisions of 35 U.S.C. § 123 are currently in effect, no patent office fees are eligible for the micro entity reduction until the USPTO adjusts and sets fees in accordance with section 10 of the AIA. The rules regulating micro entity status will be set forth in 37 C.F.R § 1.29.
According to the proposed rules, a party requesting micro entity status must file a certification of entitlement to micro entity status and must qualify for small entity status under 37 C.F.R. § 1.27. A micro entity inventor cannot have been named on more than four previously filed U.S. non-provisional application and cannot, in the calendar year preceding the calendar year in which the applicable fee is being paid, have had a gross income exceeding three times the median household income for that preceding calendar year. The USPTO will publish the eligible income level on its website. According to the proposed rules, an applicant is not considered to be named on a previously filed application for purposes of determining micro entity status if the applicant has assigned or is under an obligation to assign all ownership rights in the application as a result of the applicant’s previous employment. In addition, an applicant who is an employee of a non-profit or state institution of higher education, from which the applicant receives a majority of his income, would be considered a micro entity.
In order to qualify for micro entity status, it is proposed that all the named applicants must be eligible for micro entity status. Further, micro entity status must be established in each related, continuing and reissue application for which such status is desired.
Micro entity status, once established, remains in effect until changed by an applicant. Applicants should determine each calendar year whether micro entity fee status is warranted, as applicants’ gross income and the median household income each may change from year to year. If an applicant is no longer eligible for micro entity status, the applicant must file a notification of a loss of entitlement to the micro entity status prior to paying any fees after the loss of entitlement occurs. An inadvertent, improper payment of a micro entity fee must be corrected, whereas fraudulent payment or a fraudulent attempt to pay micro entity fees would be considered a fraud or attempted fraud on the USPTO.
Since the AIA makes a distinction between “applicant” and “inventor,” the USPTO invited comments on whether “inventor” should be used in place of “applicant” in the micro entity rules.
The deadline for submitting written comments on the proposed rules is July 30, 2012. The Patent Office requests that comments be sent via email to micro_entity@uspto.gov.
Lanham Act / False Advertising
Lanham Act Challenges May Not Undermine FDA Regulations
by Mandy Kim
The U.S. Court of Appeals for the Ninth Circuit recently affirmed a district court’s partial grant of summary judgment in a Lanham Act claim, holding that the Food, Drug, and Cosmetic Act (FDCA) and its regulations barred both the name and labeling aspects of the Lanham Act claim. POM Wonderful LLC v. Coca-Cola Co., Case No. 10-55861 (9th Cir., May 17, 2012) (O’Scannlain, J.).
Pom sued Coca-Cola alleging Coca-Cola’s name and labeling of a juice beverage violated the false-advertising provision of the Lanham Act, and also claimed that Coca-Cola violated California’s Unfair Competition Law (UCL) and its False Advertising Law (FAL). The district court partially granted summary judgment to Coca-Cola ruling that POM’s name and labeling claim was barred by the FDCA’s regulations. The district court also held that POM lacked statutory standing to pursue its state law claims because POM had not shown it was entitled to restitution under Cal. Bus. & Prof’l Code §§ 17204 and 17535. POM appealed.
Relying on 9th Circuit precedent, PhotoMedex, Inc. v. Irwin, the court held that as a general rule, “the Lanham Act may not be used as a vehicle to usurp, preempt, or undermine FDA authority” to enforce the FDCA or its regulations. The 9th Circuit emphasized however, that this general rule “operates as a presumption or general principle, and not as an automatic trump or a firm rule.” When faced with a potential conflict with two federal statutes, a court must “give as much effect to both statutes as possible.” Accordingly, a court must focus on the circumstances of each case in order to strike a balance that disrupts the two statutory schemes as little as possible. Applying the teaching of PhotoMedex to the circumstances of this case, the 9th Circuit affirmed the district court’s summary judgment ruling that the FDCA and its regulations barred both the name and labeling aspects of POM’s Lanham Act claim.
The 9th Circuit, however, vacated the district court’s summary judgment to the extent it ruled that POM lacked statutory standing on its UCL and FAL claims and remanded the case for further proceedings. The 9th Circuit noted that the California Supreme Court recently made clear that standing under § 17204 (UCL standing provision) does not depend on eligibility for restitution [Kwikset v. Superior Ct.; Clayworth v. Pfizer] and the 9th Circuit interpreted the language in § 17535 (FAL standing provision) the same way.
Trade Dress Infringement / Damages
Trade Dress Damages Award Upheld After Failure to File Post-Verdict Motions
by Alesha M. Dominique
The U.S. Court of Appeals for the Fourth Circuit affirmed a trade dress infringement award in which the appellant failed to file a post-verdict motion pursuant to either Fed. R. of Civ. P. 50(b) or 59 and instead appealed directly. Belk, Inc. v. Meyer Corp., Case No. 10-1664 (4th Cir., May 8, 2012) (Davis, J.).
Belk, an owner and operator of retail department stores, sells a number of goods, including kitchen appliances and cookware products. Belk had previously sold branded lines of cookware from its former customer, Meyer. In 2007, Belk began selling its own private-label cookware, under a license from the Biltmore Company, the entity owning various trademarks, copyrights and other proprietary rights associated with Biltmore House and Biltmore Estate, the famous private residence in North Carolina (the Biltmore line). When Meyer discovered that Belk was selling the Biltmore line in its stores, it sent Belk a cease-and-desist letter, notifying Belk that it believed the Biltmore line infringed Meyer’s trade dress in the “Anolon Advance” line and rights in design patents pertaining to that line, and that Belk was engaged in false advertising, unfair competition and numerous other commercial torts.
Belk then filed a civil action (in the U.S. District Court for the Western District of North Carolina) seeking a declaratory judgment that the Biltmore line did not infringe certain Meyer-held patents or Meyer’s trade dress, that certain of Meyer’s patents were not enforceable and that Belk did not engage in false advertising, unfair competition, or commit any commercial torts against Meyer by marketing, advertising and selling the Biltmore line. Meyer responded by filing a civil action against Belk (in the U.S. District Court for the Northern District of Georgia), alleging claims of patent infringement, trade dress infringement and unfair and deceptive trade practices under state law. Meyer’s later filed action was transferred to the North Carolina district court and consolidated with Belk’s declaratory judgment action.
A jury found that Belk infringed Meyer’s trade dress in the Anolon Advanced line and determined that Meyer suffered $420,000 in damages as a result of Belk’s trade dress infringement. The jury also rendered a verdict in favor of Meyer with respect to Meyer’s claim under North Carolina law for unfair and deceptive trade practices. Based on the jury’s findings, the district court awarded Meyer treble damages, upping the ante to $1.26 million. Belk filed no motion under Rule 50(b) during the post-judgment period permitted by rule, nor did Belk file a motion for a new trial under Rule 59. Instead, Belk appealed to the 4th Circuit.
On appeal, Belk contended, among other things, that the district court erred in denying its motion for judgment as a matter of law because the evidence was insufficient to show trade dress infringement. Meyer moved to dismiss the appeal, arguing that Belk’s failure to move post-verdict for judgment as a matter of law under Rule 50(b) or for a new trial under Rule 59 deprived the 4th Circuit of “jurisdiction” to hear Belk’s appeal or, in the alternative, the power to grant Belk the relief it sought. The 4th Circuit agreed and held that as a result of Meyer’s failure to move pursuant to Rule 50(b), Belk forfeited its sufficiency of the evidence challenge on appeal. The 4th Circuit specifically rejected Belk’s contention that the district court erred in its award of damages. The court reasoned that the judge properly treated an award of profits as damages subject to trebling under North Carolina law.
Trademarks / Ownership
Exit the Dragon: Tenth Circuit Affirms Dismissal of Cybersquatting Claim on Bruce Lee’s “Jeet Kune Do” Mark Brought by Non-Owner Martial Arts Instructor
by Adam Auchter Allgood
The U. S. Court of Appeals for the Tenth Circuit affirmed the sua sponte dismissal of Carter Hargrave’s pro se trademark infringement claim since he was not the registered owner, but a non-exclusive licensee which had no right to assert the claim. The Court concluded that the district court did not abuse its discretion or violate due process by dismissing Hargrave’s claims at a hearing on his motion for default judgment since his complaint was meritless and could not be salvaged by amendment. Hargrave v. Chief Asian LLC; Case No. 11-5112 (10th Cir., May 7, 2012) (Lucero, J.).
Jeet Kune Do, translated as “the way of the intercepting fist,” is a martial arts discipline created and popularized in the 1960s by famed martial artist and actor Bruce Lee. Plaintiff Carter Hargrave, a martial arts instructor and founder of the World Jeet Kune Do Federation, filed a complaint against owners of the www.jeetkunedo.com website. Hargrave claimed that the defendants were cyber-squatting and infringing on his interests in the mark “Jeet Kune Do”.
To state a claim for trademark infringement under 15 U.S.C. §1114(1) or cyberpiracy under §1125(d), the party bringing the action must be the registered owner or assignee of the mark. If a mark is not registered, a claim may still be brought for trademark infringement under §1125(a)(1).
Concord Moon LP, a California limited partnership of whom certain heirs of Bruce Lee are principals, controls the rights in and to the intellectual property of the Bruce Lee Estate and is the registered owner of the “Jeet Kune Do” trademark. At a hearing on Hargrave’s motion for default judgment, Hargrave submitted a copy of a settlement agreement between him and Concord Moon LP as well as a “Trademark Assignment Abstract of Title” in order to establish his rights to the mark. The district court determined that the plain language of the agreement did not grant any exclusive right to the mark, but was simply a basic license to use the mark. Also, the “Trademark Assignment Abstract of Title” outlined a succession of owners and showed that Hargrave was not, nor had ever been, the owner or assignee of the mark. Since Hargrave was not the owner of the registered mark, the 10th Circuit agreed he lacked standing to bring claims under §1114(1) or §1125(d).
Hargrave further argued that he had a common law right to the “Jeet Kune Do” mark that could give rise to claims under §1125(a). However, since the mark was already registered and ownership recorded, a common law trademark was not necessary and §1125(a) did not apply. Since Hargrave’s complaint was based on a legal interest that he did not possess and could not establish though subsequent amendment, the 10th Circuit determined that the district court’s sua sponte dismissal with prejudice for failure to state a claim was proper.
Trademarks / Confusing Similarity
Parody Not a Defense When Trademarks Are Confusingly Similar
by Ulrika E. Mattsson
The Trademark Trial and Appeal Board (the TTAB) held that a novelty T-shirt company’s trademark registration showing a polo player falling off his horse was confusingly similar to the famous trademark logo owned Ralph Lauren for a polo player sitting on his horse. The TTAB further found that “parody is not a defense if the marks are otherwise confusingly similar.” PRL USA Holdings v. Thread Pit, Cancellation No. 92047436 (TTAB, May 14, 2012).
Ralph Lauren petitioned to cancel a trademark registration owned Thread Pit for a logo showing a polo player falling off his horse, arguing, among other things, likelihood of confusion of the two marks. Thread Pit asserted as an affirmative defense that its use of its mark is a parody of Ralph Lauren’s marks. They also argued that the fame of Ralph Lauren’s marks served to lessen the likelihood of confusion with Ralph Lauren’s mark, because fame of a mark heightens the public’s awareness of variances in marks.
The TTAB disagreed finding that the Threat Pit mark to be confusingly similar to the Ralph Lauren marks. The TTAB concluded that 40 years of use, substantial advertising and expenditure, media exposure and substantial sales via many retail stores, supported its finding that Ralph Lauren’s marks are famous and therefore entitled to a wide scope of protection. The goods involved are in part identical and, as the TTAB noted, there are no restrictions in the identifications set forth in the registrations. With regard to the channels of trade and classes of purchasers of the respective goods, the TTAB concluded that the classes of consumers and channels of trade are presumed to include the normal channels of trade for these goods, as sold to the normal classes of consumers. Therefore, the TTAB found that the similarities between Ralph Lauren’s and Thread Pit’s goods, channels of trade and classes of purchasers favor a finding of likelihood of confusion.
The TTAB further observed that when the goods are identical, a lesser degree of similarity between the marks is necessary to find confusion likely. Here in each logo, the horses are in an identical position with the left front leg curling back and crossing the right rear legs, the reins drape in the same manner, and the polo mallet extends from the rider at the same angle. The only difference in the appearance of the marks is the position of the rider. The TTAB held that given the fame of Ralph Lauren’s marks, the points of similarities in appearance, connotation and commercial impression outweigh the dissimilarities.
Finally, the TTAB held that Thread Pit’s argument that their logo was a parody of Ralph Lauren’s polo player logo and a parody of that elite, luxury lifestyle “is not a defense if the marks are otherwise confusingly similar.” The TTAB concluded that parodying a lifestyle is not a parody of a trademark.
Copyrights / Litigation
South Park a Parody? No, Really?
by Natalie A. Bennett
The U.S. Court of Appeals for the Seventh Circuit ruled in favor of Viacom and South Park Digital Studios (SPDS), makers of the animated television show South Park, in dismissing a copyright infringement action that was still in the initial pleading stages. Addressing the procedural and substantive grounds for dismissing the suit, the 7th Circuit found waiver and determined that only two pieces of evidence, the works in issue, were needed to prove SPDS’s fair use defense. Brownmark Films LLC v. Comedy Partners et al., Case No. 11-2620 (7th Cir. June 7, 2012) (Cudahy, J.). As such, the dispute was resolved without the burdens or expense of discovery and trial.
Brownmark owned a copyright in a video that went viral on the Internet. The viral video was later parodied on an episode of South Park. In the episode “Canada on Strike,” the South Park creators spoofed a strike by the Writers’ Guild of America by depicting striking Canadians demanding a share of the “internet money” they believed was owed to them as a result of disseminating viral videos and online content. To illustrate the point, the South Park Elementary school boys decided to create a viral video in order to earn enough “internet money” to put an end to the Canadian strike. In the episode, the South Park characters earn substantial “theoretical dollars” through their viral video “What What (In the Butt)” (WWITB). The WWITB video parodies the original Brownmark video featuring an adult male singing and dancing in tight pants.
When Brownmark filed suit against the creators of South Park, the complaint cited to both the original version of the WWITB video, as well as the parody version airing on South Park, yet neither work was submitted to the district court. SPDS moved for dismissal under Rule 12(b)(6), arguing that the South Park version of the video fell within the fair use defense of § 107 of the Copyright Act. When moving for dismissal, SPDS submitted both the original and parody WWITB videos to the court. Brownmark responded to the motion only by contesting whether the district court could dismiss the complaint based on SPDS’s affirmative defense. In other words, Brownmark addressed the pleading requirements and the federal rules but did not address the substance of the fair use defense arguments. After the district court granted the motion to dismiss, Brownmark appealed.
On appeal, the 7th Circuit first analyzed whether the district court erred in considering SPDS’s fair use defense in the context of a Rule 12(b)(6) motion to dismiss for failure to state a claim. Acknowledging that a court ruling on a Rule 12(b)(6) motion cannot typically consider matters outside of the “four corners” of the complaint, the panel explained that the incorporation by reference doctrine provided the means by which the court could consider documents attached to a motion to dismiss if those documents are referred to in the complaint. Here, the original work and the allegedly infringing work were both referenced in the Brownmark complaint (and subsequently attached to the Rule 12(b)(6) briefing papers). The 7th Circuit notes that a Rule 12(c) motion for judgment on the pleadings would have been a more procedurally correct vehicle for SPDS to challenge the allegations, but the attachment of the disputed videos converted the motion to dismiss to a motion for summary judgment. Ultimately, the court elected to go through the fair use analysis without quibbling over the miscaptioning for SPDS’s motion.
With the motion properly before the court, it addressed the fair use issue. Since Brownmark never argued the merits of the fair use defense in the district court, the 7th Circuit concluded that those arguments were waived on appeal. Despite finding waiver on the merits, the court analyzed each of the fair use factors and agreed with the district court that this was “an obvious case of fair use.” In determining whether a work constitutes fair use, the district court correctly considered the non-exclusive factors including the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion of the copyrighted work used in relation to the copyrighted work as a whole and the effect of the use upon the potential market value of the copyrighted work.
Although discovery may often be required to weigh these factors, in this particular case, the court concluded that the merits of the claim could be evaluated simply by viewing the two works side by side. The South Park episode was definitively found to be a parody of the original WWITB video. The 7th Circuit explained that the South Park video had “transformative value” because its use was calculated to “comment on and critique the social phenomenon that is the ‘viral video.’” Despite using a substantial portion of Brownmark’s work, the court held that South Park’s version of the WWITB video did not “supplant” the original work. Lastly, the court drew an interesting conclusion as to the market effect of the parody video; noting that since there is no “internet money” to be made on Brownmark’s viral video and the only ensuing revenues would come from advertising dollars, the South Park spoof of the original work likely increased the value of Brownmark’s work. In other words, since the value of viral videos is tied to the number of online views, the alleged infringement (by way of a national broadcast) would—ironically—actually boost the number of views for the original work. Accordingly, Brownmark’s video would not have declined in value following the airing of the parody. Having evaluated all the factors, the district court’s fair use finding was affirmed.
Practice Note: This case is notable for recognizing that intellectual property claims may be brought in an effort to impose litigation costs and force a settlement but that the federal rules provide sufficient tools to squelch frivolous suits before litigation costs become a significant obstacle.
Copyrights / Damages
Postal Service Must Pay Reasonable Royalty for Copyright Infringement
by Rose Whelan
Considering the proper measure of damages under 28 U.S.C. § 1498(b), the U.S. Court of Appeals for the Federal Circuit vacated the trial court’s damages award and remanded to the Court of Federal Claims to determine the fair value of a license for the full scope of the Postal Service’s infringing use. Gaylord v. U.S., Case No. 11-5097 (Fed. Cir., May, 14,2012) (Moore, J.).
Frank Gaylord is the creator and holder of a copyright interest in “The Column,” a group of nineteen stainless steel sculptures representing a platoon of solders. “The Column” is the centerpiece of the Korean War Veterans’ Memorial on the National Mall in Washington, D.C. In 2002, the United States Postal Service issued a postal stamp and sold retail goods commemorating the 50th anniversary of the Korean War, featuring a photograph of “The Column.” In 2006, Mr. Gaylord sued the United States under § 1498(b), which waives sovereign immunity for copyright infringement. In a previous appeal, the Federal Circuit held that the Postal Service was liable for copyright infringement and identified three general classes of infringing items: stamps that were used to send mail, unused stamps retained by collectors and retail goods featuring an image of the stamp. In the prior case, the Federal Circuit remanded for damages.
On remand, the Court of Federal Claims rejected Mr. Gaylord’s claim for a 10 percent royalty on about $30.2 million in revenue allegedly generated by the Postal Service, as well as his claim for prejudgment interest. In determining damages, the lower court employed a “zone of reasonableness” standard to determine the copyright owner’s actual damages. Applying this framework, the lower court determined that the “zone of reasonableness” for the value of a license on Mr. Gaylord’s copyright was between $1,500 and $5,000 based on evidence of prior postal services licenses.
The Federal Circuit rejected the lower court’s approach and adopted the same approach to damages under § 1498(b) that its predecessor court adopted for damages under § 1498(a), which waives sovereign immunity for patent infringement. The Federal Circuit determined that the “reasonable and entire compensation” provided for (in both §§ 1498(a) and (b)), entitled a copyright holder compensatory damages only, not to non-compensatory damages.
In this case, the Court determined that the appropriate measure of compensatory damages under § 504 of the Copyright Law was the fair market value of a license covering the defendant’s use and that the proper value of this license should be calculated based on a hypothetical arms-length negotiation between the parties. The lower court erred by restricting its focus to the Postal Services’ past payments and internal policies and was instructed on remand to consider all evidence relevant to a hypothetical negotiation, including Mr. Gaylord’s past royalties of between 8 percent and 10 percent. The Federal Circuit also instructed that the lower court may conclude that different license fees are appropriate for the three categories of infringing goods identified in its prior opinion.
In addition, the Federal Circuit vacated and remanded the lower court’s denial of prejudgment interest, holding that sovereign immunity does not limit prejudgment interest under 28 U.S.C. § 1498(b).